What You Need to Know About Mergers and Acquisitions

Mergers and acquisitions (M&A) are common processes in the business world and are often performed with the assistance of an established merger and acquisition broker. An acquisition is when a company purchases another company. A company may choose to acquire another business for several reasons including increasing revenue and profits, gaining new technology, and expanding into new markets. For instance, Google purchased YouTube for $1.65 billion in 2006.

A merger is when two or more businesses combine their operations under a single company and share common goals. A merger can be done with or without the acquisition of another company. Merging two companies can also be effective if there are synergies between the two companies that can provide cost savings and increased productivity. For example, Wendy’s merged with Arby’s in 2008 to form Wendy’s/Arby’s. The two companies became one company without Arby’s being acquired.

How the M&A process works

The first step in the process is to develop an acquisition strategy where the buyer outlines what they wish to gain from the new acquisition. Then, key criteria such as profit margins are determined and buyers search for potential target companies that meet these characteristics. Companies are often identified through company reports and other research. Potential target companies are then contacted and evaluated to determine if they meet all of the desired criteria set by the buyer. The target company will be asked to provide detailed information.

Once a target company is selected, the parties enter into negotiations to decide the terms and conditions of the transaction. During the negotiations, the buyer may agree to add additional conditions to the agreement such as requiring that the seller provide certain warranties regarding the assets being purchased. The buyer undertakes the exhaustive process of due diligence to identify any potential problems or concerns and come up with an accurate assessment of the target company’s value.

Once the negotiations are complete, the final contracts for sale are finalized and signed by the parties. Any financing preparations will now be actioned. After the closing of the transaction, the buyer begins to integrate the operations of the target company into its operations. Finally, the seller files the required documents with the Securities and Exchange Commission (SEC) to notify the public of the change of ownership of the target company.

Important points to note about M&A

  1. The M&A process can take a long time

A merger or acquisition typically takes at least three months from start to finish in Orlando. However, depending on the urgency of the buyer and the complications of due diligence, it is not uncommon for the process to take half a year or longer. To hasten the process, sellers should ensure that their important records and statements are prepared and made available to buyers. Key personnel such as the CEO and CFO should be ready to answer questions fielded by the buyer. An M&A broker can help to find other buyers to add competitive pressure on potential buyers to quicken decisions. 

  1. Your business will be scrutinized

An intense due diligence process will be undertaken by the buyers to ensure that the merger or acquisition is beneficial. Selling parties must conscientiously populate virtual data rooms with any information that buyers need to perform their evaluations. But first of all, the selling company should ensure that its contracts, records, and financial documents will stand up to investigation. Issues that may cause problems include missing board resolutions, unsigned contracts, and possible intellectual property misuse. Buyers will also examine the financial health of the selling company including future projections and whether the company has sufficient resources to sustain operations prior to the acquisition.

  1. Be prepared to negotiate

Valuation and sale prices are negotiable in an M&A deal. Since buyers often start with a lower sum than they are prepared to pay, sellers should consider making a counteroffer. Factors such as speed of growth, prices of early-stage investor share sales, and proprietary research can all affect the price that your company can command. In addition, your company is generally worth more if there are multiple interested buyers or a genuine possibility of an IPO. To expedite and streamline the negotiation process, companies can appoint a lead negotiator or broker to make quick decisions to the advantage of the seller or buyer.

  1. You need a strong M&A team

From its inception to completion, the M&A process is complex and multi-faceted. Having an experienced and knowledgeable M&A broker will enable buyers and sellers to connect with the right targets in a shorter time. M&A brokers can also assist in negotiations to ensure that you get the best deal possible for your business. It is equally essential that you engage a legal team of M&A attorneys that specialize in mergers and acquisitions as well as relevant specialty areas such as taxation, intellectual property, and employee contracts.

A merger or acquisition can be extremely beneficial for your business. However, without the proper preparation and assistance, it can be difficult to navigate the complexities of the M&A process. If you are looking to be part of an M&A in Orlando, be sure to find a reputable broker and legal team.

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